All Forum Posts by: Cory Carlson

The entry barrier for investing is pretty high in our Oregon market. The single family market even in the secondary/tertiary markets are priced out and if cashflow is your initial goal. You will be hard pressed to find something with that amount of capital that provides a positive leverage return (CoC exceeding the cost of financing).

Yes Oregon is a market that sees healthy appreciation, but from a wealth building perspective you cannot rely on that. Buying, holding and hoping is not a real estate strategy. Put your money somewhere where it is working for you with a healthy position on the yield curve. 

One strategy that does work with that amount of capital is the forced appreciation play in the secondary small-plex market. To oversimply it: Acquiring a duplex with low rents and deferred maintenance. Raising rents to market, doing those fixes in theory raises the value when using the income approach. Its sort of like the soft version of a single family BRRRR. The more units you have, the easier this strategy is to forecast/project.

Consider finding a partner/additional capital and doubling your money? You're right on the cusp of capital. 

There are also other networking groups that are not real estate specific I've had a good time making connections at. Kristy Starr owns/runs Bend Beers & Business cards. This is where I have made several lender, contractor, photographer connections - among other useful contacts. Most of the networking events are shown on the app MeetUp. 

Accelerated paydown is not an advisable strategy, even nearing retirement age. Buy/hold return metrics are generally based on this basic formula: Income $ / Invested equity. Let me give you a couple examples.... 

We need to know these facts first: 

1. Income + other income (laundry, RUBS, parking, etc) - vacancy = Effective Gross Income

2. Effective Gross income - debt = Pre-tax cashflow (ie. whats left over after expenses and debt service)

By accelerating your paydown on a property you're raising the denominator in the calculation faster than the numerator. Essentially you're returns based on how much money you have invested is getting lower. People get so fixated on the dollar amount they are getting in return but overlook the fact that its how much is that dollar you're making to your investment. To take this a step further would be to incorporate taxes - After-tax cashflow is based on the investors effective/marginal tax rate, depreciation (this is strategy specific) and interest expense. 

This is just the gist of the illustration. Here is a PDF that serves as a great illustration on leverage and the 4 major return metrics: 

1. Pre-tax cashflow

2. After-tax cashflow

3. After-tax cashflow + Principle paydown

4. After-tax cashflow + Principle paydown + Appreciation (the only subjective component in the 4 metrics) 

*The first 3 are just arithmetic, the 4th has some objectivity to it.

You could analyze an accelerated paydown scenario on a buy/hold property and you would see your returns drop faster based on your invested equity. Simply put, your money isn't working as hard. 

EDIT: The PDF is on my profile, couldn't figure how to attach. 

I would opt for a 30 year. Given the low rates today I like to look at what is called positive leverage. IF your CoC can exceed the cost the money, you're using "good debt". For example, say your rate is 3% and you're pre-tax cashflow is $X, or 5%. There is a 2% delta - making money on borrowed money. There are additional/marginal tax benefits as well on the interest expense. This is just scratching the surface on hold time, but generally the yield curve (hold period) is longer when you're properly leveraged. Remember, the denominator of the calculation is your invested equity. By accelerating paydown on a property, you're shortening the ideal paydown. This is why I try to educate my clients that its not just the dollar amount you're cash flowing in a given year, its the dollar amount TO how much you have invested.

Essentially how to use leverage is the fundamental way to answer and analyze your situation. 

Concur with Shane above. IT is lender specific but I know with my house hack clients depending on the loan type they will count up to 75% of the adjoining unit-s rent as "income". I call it phantom income. This can help push borrowing power. 

You're the type of client my firm specializes in working with. To accurately tailor a strategy based on your description you need to calculate the projected returns based on your invested equity for each property individually then the portfolio cumulatively. Hard to tell you where to go before knowing where the portfolio lies now. Here we can identify based on a combination of principal paydown and market appreciation if you buy/hold period has flatted (also known as the yield curve). There are some fundamental hold metrics that are more important depending on strategy. Third strategy would be a combination of refi and exchanges into a single higher yielding property. The returns would be compared to the existing portfolio returns. I work with a lot of SFH and 2-10 unit portfolio's and almost always given the SFH market appreciation (in OR) the play is to exchange into more doors.

Of course there is a conversation to be had on longer term goals. Given there are strategies and property sizes/types that could have better cashflow, be turn-key versus forced appreciation, tax protection, etc. 

The answer to your question lies in sound analysis. 

Welcome to the Forums @Kelly Gilmore You'll find a wealth of information and a community of new, experienced and savvy investors here. Hopefully you can build your team off BP, i've had great success curing client and colleague relationships. 

I would familiarize yourself with each market's Airbnb laws that you are interested in executing your strategy. Many have very specific regulations. For example, Bend has strict STR laws that only allow X amount of AirBnb's in a certain neighborhood and no closer than I think its 250' from one another. (Don't quote me, i know something like that is in place) There are some exceptions for STR's that are grandfathered in but I'm pretty sure this passed in 2016.

@Keegan Gallagher Welcome to the forums!

Sounds like you have a good sense of direction going with a house hack. The Portland plex market is competitive right now. I am working with several house hack buyers in the Portland, Salem, and Central Oregon markets.

If you wish to network a bit, download the MeetUp app and there are all sorts of real estate investing related virtual meet-ups.

In Oregon, (especially C.O) the fix and flip and single family buy/hold market is the rat race of real estate investing. The 1% rule IS dead in the NW. Even small-plex's are dangerously close to break-even numbers. Depending on your available capital, I've been advising my clients who don't have enough of their own capital to pool funds and acquire larger (also higher returning) property types than single family.

I am working with several single family portfolio's at the moment all over the state and the strategy is exchange out of several at the same time and acquiring apartment buildings. From a return on capital/equity its a no-brainer after comparing the current returns. 

1. Improved cashflow

2. Better tax benefits

3. Owning higher asset value

4. Capital/equity growth using the income approach. For example, a $2,000,000 apartment building at a 5 CAP, has an NOI of $100,000. Raising that NOI year 1 just $5,000 (this is raising rents $27/unit on average for a 15 unit building) increases the value by $100,000 (at a 5 CAP).

This thinking (my #4 point) is a bit convoluted in the 2-4 unit market, but the same principle applies which is why if my client doesn't have the means to acquire an apartment building and wishes not to pool their funds to go with multifamily. You can better manipulate values using the income approach.